The past few years have taught you how valuable personal savings can be. When the world goes sideways, this stash of cash can help you handle unexpected hardships from lost wages to extra costs.
Unfortunately, these past few years have also been challenging for those hoping to make the most of their savings. As inflation takes consumer prices for a ride, personal savings rates have come to a screeching halt.
With the value of your dollar dropping, it makes sense you want to do anything you can to earn as much interest on your emergency fund as possible. Today, you might be considering investing in your emergency fund.
Here are three unmistakable reasons why you shouldn’t.
1. It’s Not as Liquid as Cash
The whole point of an emergency fund is that it’s there at a moment’s notice as soon as you need it. If your car breaks down one day, or you have to rush your dog to the vet, you can tap into these savings for repairs and veterinarian costs without delay.
Squirrelling away your emergency fund on the market trades this liquidity for greater returns. While you may be earning more interest on your investments, you can’t access this money as quickly in a crisis.
Depending on your investment, you won’t be able to cash out for months or even years without penalty. You may also have to pay extra taxes on any withdrawals you make.
2. Borrowing Costs More
Most emergencies are not something you can hit the pause button on until you earn enough money. They’re usually urgent repairs that need immediate attention — whether you have the cash or not.
For the have-nots, borrowing direct deposit loans may be the only way they can fix the brakes on their car or afford the lab tests their dog needs. So, what is a loan with direct deposit? It’s an online loan that provides a small yet valuable boost to your budget so that you can handle whatever life throws at you.
If approved, direct deposit loans deliver your funds straight into your bank account. Depending on your lender and bank’s policies, you can wind up getting these funds fairly quickly.
Like any personal loan, direct deposit loans come with interest and fees. How much they add to your cash advance depends on your financial profile. If you’re borrowing with bad credit, you can expect higher fees than those with pristine credit.
Great or terrible credit — no matter what, you’ll pay more using a personal emergency loan than your savings, as you’ll have to pay back your principal and interest and any other charges applied by your lender.
3. There’s a Risk You’ll Lose Money
The nature of an emergency is that it’s unpredictable. You won’t be able to anticipate when your car breaks down on the side of the road or when your dog will scarf down all the chocolate in the house.
When life’s curveballs are wholly random, you can’t time your withdrawals to insulate your returns. Fido’s dangerous sampling of chocolate can happen at a time when the market has just taken a dip, so you’ll be solidifying all your losses as soon as you cash out.
In other words, you could lose money by investing in your emergency fund.
Don’t risk your emergency fund by chasing greater returns on the market. It’s not liquid enough for unexpected expenses, and there’s a good chance you might lose money when withdrawing funds.
Instead, try finding the high-yield savings accounts. Only start to think about investing once you have three to six months of living expenses set aside in a liquid account. Then you can start investing without betting your emergency response time on the Street.